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The Bush administration is leaning toward a renewal of a law that sanctions foreign companies that invest in Iran's energy industry, according to government and industry officials.

The law, which drew the objections of European and Asian countries when it passed in 1996 with the backing of the pro-Israel lobby, aims to halt the flow to Iran of hard currency that it can use to support terrorism.

Business groups, who insist that the sanctions do not affect Iranian behavior, hope that the administration will fight an extension of the law and allow it to lapse on Aug. 5 as part of a broader review of policy toward Iran.

"We favor letting it expire and giving it a decent burial," said William Reinsch, president of the National Foreign Trade Council, the business group most active in the fight.

But the administration, though it has not formally come down on the issue, has sent strong signals that it would not stand in the way of a vote in Congress to extend the law, which also applies to Libya.

Deputy Secretary of State Richard Armitage said at his March 15 confirmation hearing that he saw little evidence that either country's behavior warranted a change in sanctions.

"I don't think there is going to be much enthusiasm for a fight on this one," Mr. Armitage said. "From my point of view, there is not enough movement in Iran or Libya to warrant a big fight."

Since then, the administration has privately hinted it might seek minor changes that would increase the president's flexibility in administering the law, but that it would not oppose extension, a source close to the issue said.

A senior administration official told a House subcommittee last week that a decision on the sanctions law would await the outcome of a broader review of policy toward Iran.

Broad bipartisan coalitions are forming in Congress to re-authorize the law, congressional sources said. Sens. Gordon H. Smith, Oregon Republican, and Charles E. Schumer, New York Democrat, plan to introduce legislation this summer, and expect to add 30 co-sponsors to the 12 they already have lined up, a staffer said.

"Iran gets its money to fund terrorism through investment in its oil sector," said Joe Sheffo, a spokesman for Mr. Smith. "That's what we're after."

In the House, Representatives Benjamin A. Gilman, New York Republican, and Howard L. Berman, California Democrat, are pushing the bill.

The American Israel Public Affairs Committee is also backing the bill, as it did in 1996. The group believes that oil and gas revenues drive Iranian sponsorship of active terrorist groups, especially in the West Bank and Gaza Strip.

Allowing the law to lapse would create in Iran the "perception that the sanctions regime is crumbling" even though the Clinton administration did not use the law aggressively, said one official of a Jewish organization, who asked not to be identified.

European officials have begun lobbying the Bush administration against a renewal.

The Iran-Libya Sanctions Act penalizes non-U.S. companies that invest more than $40 million in either country's oil and gas sector. The president can impose a variety of sanctions on the offending company, but also can issue a waiver declaring that imposing the sanctions would harm American interests.

A 1995 executive order, which President Bush extended last week, bans investment by American companies in Iran.

Former President Clinton waived sanctions in every instance, most notably in May 1998, when he exempted a French-Russian-Malaysian consortium investing in Iran from penalties under the act.

Since then, business groups argue, the intended deterrent effect of the law has melted away, ensuring that Iran's oil and gas industry will enjoy foreign support and only American companies will be excluded. Ed Rice, executive director of the Coalition for Employment Through Exports, a business group, insists that the law has become irrelevant.

"There is a flood of reports each week about foreign investment in the sector," Mr. Rice said.